Sales tax holiday, other new tax breaks to cost Ohio $43 million

Sales tax holiday, other new tax breaks to cost Ohio $43 million

Ohio’s budget office recently released new estimates of how much revenue the state will take in this fiscal year and they were down. One cause: A set of new tax breaks approved by the General Assembly in the past year. Altogether, the Office of Budget and Management (OBM) estimated, they’ll cost $43 million this year. That’s $43 million that instead could go into allowing more kids to go to preschool, cutting the cost of college tuition, or helping our inadequately supported public transit systems serve more riders, among Ohio’s many needs.

What’s in this bundle of breaks?

Most costly is the sales-tax holiday Ohioans will get this weekend, whose cost is pegged at $17.7 million. While the ability to buy back-to-school items without paying sales tax may seem like a good deal, it’s a poorly targeted policy that isn’t the best way to reduce a tax that falls more heavily on lower-income Ohioans. A recent brief by the Institute on Taxation and Economic Policy explained why sales-tax holidays are misdirected, “cost revenue, can easily be exploited, and create administrative difficulties.”

Other tax breaks that will reduce revenue include:

An expansion of the movie tax credit, which is expected to cost $10.5 million in Commercial Activity Tax. The expansion was approved as part of a broader budget bill, and though it is not as large as proposed in an earlier, separate bill, it allows the credits to be transferred to others for the first time. As Policy Matters Ohio explained in testimony on the earlier bill, this enables “complicated deals that give special tax breaks to financial interests and companies who do nothing to bring movies to Ohio.”

The exemption of digital advertising from the sales tax. OBM estimated the cost at $10 million, though the Legislative Service Commission wasn’t sure what the cost would be;

A sales-tax exemption for collectible coins and bullion ($5.1 million). This special interest exemption, though changed somewhat in its final form, has no place in the tax code.

While it approved these tax breaks, the General Assembly has failed to agree on House Bill 9, a bill that would for the first time provide a permanent review mechanism for tax breaks. Both houses passed it, but they approved different versions. If these new tax breaks were just unfair or unnecessary, that would be bad enough. But they sap Ohio’s ability to deliver the good schools, vital human services and essential health care that make our state a good place to live and do business. So let’s hope the House and Senate can agree this fall on reviewing tax breaks, and at the same time refrain from adding unneeded new ones.